Remember When Donald Trump Promised to Save Social Security?

Instead, the administration is reportedly considering a plan to eliminate the payroll tax and replace it with a VAT.

April 18, 2017

President Trump delivers his first address to a joint session of Congress from the floor of the House of Representatives in Washington, DC, February 28, 2017. (Jim Lo Scalzo / Pool Image via AP)

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Donald Trump’s self-proclaimed refusal to even contemplate cuts to Social Security during last year’s presidential race reeked of a con for a basic reason: It almost certainly was one. His statements were simultaneously strident, certain, and vague—all too reminiscent of Trump University’s get-rich-quick, positive-thinking vibe. “I am going to save Social Security without any cuts. I know where to get the money from. Nobody else does,” he once tweeted. Another time, at a 2016 campaign rally, he claimed, “We’re going to save your Social Security without killing it like so many people want to do.” 1

It’s all but certain these sorts of sentiments helped Trump prevail in the Republican primary, where competitors ranging from Marco Rubio to Ted Cruz seemingly competed to see who could toss more future senior citizens under the bus. It’s also likely they had an impact in the November election as well. Trump denied he wanted to make cuts to the program. Why worry?2

Now, details of a possible Trump administration plan for Social Security are emerging, and you don’t need any knowledge at all of what’s in his still-unreleased tax filings to know it will favor the Trump family bottom line—at the expense of yours and mine. That’s how Donald Trump rolls.3

According to the Associated Press, someone described as a “lobbyist with close ties to the Trump administration,” is promoting a scheme that would do away with the 12.4 percent payroll tax—which is jointly paid by workers and their employers—and replacing it something resembling a value-added tax (VAT). The money raised by the new tax would be used to fund Social Security. As the Associated Press reported, “This approach would give a worker earning $60,000 a year an additional $3,720 in take-home pay.” A tax cut! What could go wrong?4

Like with most Trump proposals: a lot! The Social Security tax is—notoriously—a regressive tax; it impacts lower-income people more than higher-income ones. Earned income in excess of $127,200 is not taxed for Social Security benefits, nor is dividend income or money earned on capital gains. But a VAT can also be regressive. Businesses will almost certainly pass the costs on to their customers. Since lower- and middle-income people use a much greater share of their paycheck for day-to-day expenses than the wealthy, they could be disproportionately hit.5

But if you think that’s bad, you ain’t seen nothin’ yet. 6

The 12.4 percent payroll tax—regressive though it may be—represents not just dedicated funding, but money we see directly in action. That’s why Social Security is popularly thought of as an entitlement. People suppose they earned their retirement stipend because they themselves put money into the system for the entirety of their working lives. Heck, Trump himself has endorsed this sentiment. “It’s not unreasonable for people who paid into a system for decades to expect to get their money’s worth—that’s not an ‘entitlement,’ that’s honoring a deal,” he wrote in his 2011 book Time to Get Tough. 7

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This proposal would most likely sever that link. The money won’t be coming out of out paychecks, making Social Security seem like just one more thing the government funds out of tax revenues, instead of a guarantee. It’s “a stealth attack,” wrote Nancy J. Altman, the president of the advocacy group Social Security Works, in a blog post at The Huffington Post, something that will ultimately “starve the beast.”8

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Social Security is a perennial punching bag for the right wing and the budget-deficit obsessed alike. The elderly, after all, are the ultimate takers, mooching off good working folk. This is hardly an exaggeration on my part. Former Wyoming Senator Alan Simpson once famously referred to Social Security as “a milk cow with 310 million tits.” This stuff is echoed in conservative media regularly. Born-again personal-finance guru Dave Ramsey, for instance, is known to talk shit about Social Security on his three-hour Monday through Friday radio program, which airs on more than 500 stations nationwide. “It’s up to you, not the government, to make your retirement great,” reads a typical blog post.9

This is all absurd. As individuals, most of us are incapable of guaranteeing ourselves a financially secure retirement. Without Social Security, close to half of Americans over the age of 65 would live in penurious circumstances. No surprise, surveys show a majority of both Democrats and Republicans favor increasing Social Security benefits. Those same polls show many would be happy to raise their own taxes to both do so and firm up the program’s finances. It’s worth noting that Hillary Clinton, who proposed doing away with the payroll-tax cap on incomes in excess of $250,000 in order to raise benefits for some recipients, received almost 3 million more votes than Trump.10

To be fair, Trump has not yet come out to say whether he supports the VAT-for-retirement scheme. But during the 2016 campaign, Trump aides were quick to assure the people who mattered that Trump’s soothing talk on Social Security was just Donald being Donald. No need to take this seriously at all, came the word from people as varied as chief policy adviser Sam Clovis (“After the administration has been in place, then we will start to take a look at all of the programs, including entitlement programs like Social Security and Medicare”) and economic adviser Tom Barrack (“Everyone has to give something up”).11

One thing’s for sure: Trump’s actions to date on retirement are concerning. Last week, he signed a congressional override of an Obama-era regulation permitting states and other localities to set up and manage savings plans for workers whose employers don’t offer them such an option at their place of employment. His administration is also attempting to roll back or significantly undercut another Obama initiative, one that would have forced financial advisers giving guidance to retirement savers to offer up advice in their best interests, the so-called fiduciary standard. 12

Donald Trump hasn’t earned our trust. I’m guessing he never will.13

Helaine OlenTwitterHelaine Olen is the author of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry and co-author of The Index Card: Why Personal Finance Doesn't Have to be Complicated.

"People suppose they earned their retirement stipend because they themselves put money into the system for the entirety of their working lives." People may suppose but they are wrong. SS is hugely redistributive. Is it an entitlement if I put $5 into the kitty but expect $10 out ? The average couple now receives less from SS than they put in.
http://business.time.com/2012/08/07/social-security-now-takes-more-than-it-gives/

But it gives liberals cover for what SS really is - which is a redistribution scheme to give money to the poor. And that's fine. But make it what it is without all the nonsense. Roughly 25% of SS recipients have $1 m in liquid assets. And 5% have $2 m. Means test SS. Let the fund exchange its treasuries by having the general fund borrow in the public market and use the proceeds to fund the SS trust fund with private securities. The increased return and means testing will go a long way to resolving the current deficiency.

(0)(3)

Ronald Holchsays:

April 19, 2017 at 10:19 pm

Relying on private capital on the stock exchange to build the SS trust fun is the hope of every greedhead on wall street. This is clearly foolish if you have a memory that goes back just 10 years ago you would know why. But more importantly it is completely unnecessary.
All Social security needs is to remove the cap of taxing or "tax max" for those who earn more than 106k.
In other words right now you only pay SS tax on the first 106k of your annual earnings and after that, all the rest of your money is not taxed to increase the benefit pool. Increasing the maximum that can be taxed alone will solve the SS problem for the foreseeable future.
But this will only happen when we elect politicians that actually care about us, the 99%.

All insurance is a transfer of wealth from those who pay premiums and do not file claims to those who do file claims.

We geezers who are retired and not paying FICA taxes get benefit checks (actually, electronic deposits) every month. This money comes from FICA taxes paid by people who are working and paying FICA taxes.

The transfer of wealth is from the younger generation to the older generation.

It is the progressive income tax that redistributes the wealth. Teddy Roosevelt wanted steeply graduated income and inheritance taxes to redistribute the wealth in the country because the 1% controlled 50% of the wealth in the country during the Gilded Age when there was no income tax. The Constitution was amended to provide for an income tax in 1913. This tax and the Great Depression resulted in the 1% controlling 25% of the wealth in 1980.

Reagan was elected in 1980 and we got supply-side economics: cut taxes on the wealthy to stimulate the economy. Reagan and Bush II did cut taxes on the wealthy and this resulted in a massive transfer of wealth from the 99% to the 1% because today the 1% controls almost 40% of the wealth in the country. We are almost back to where we were during the Gilded Age. Or, as Warren Buffett said: "It's class warfare and my class is winning."

(3)(0)

Joseph Chavezsays:

April 19, 2017 at 6:08 am

It seems like Trump is going out of his way to not allow states to do a good thing for its population. This doesn't smell good at all.

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Ronald Holchsays:

April 18, 2017 at 10:11 pm

This is really big. Imagine a world where you got old, could not work and you starved to death. A century ago this was the American nightmare. Today this is the wet dream of Ian Rand libertarians. It's time we made sure that Social Security is once again the 3rd rail of politics. Touch it and your political career dies.

(11)(0)

Ronald Holchsays:

April 18, 2017 at 10:53 pm

Ayn Rand, sorry.

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Rob Dicksonsays:

April 18, 2017 at 4:50 pm

Your concerns are well-taken. Having said that, taxing something means less of it. Taxing labor means fewer jobs. How about replacing labor taxes with a PAT - a pollution-added tax? Yes, it must be dedicated to providing Social Security, Medicare, and Medicaid benefits. Yes, it must be structured to be progressive, not regressive. Think it through - if goods and services with high embedded pollution become more expensive, this means goods and services produced locally become more competitive. A PAT has three benefits in one tax - supports entitlement programs, makes labor less expensive, stimulates innovation of local, non-polluting goods and services.

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Aaron Sobelsays:

April 18, 2017 at 3:48 pm

When will the millions of hard working men and women, workers in the fields and the factories, learn they were conned when they voted for the Trumpeter. When! Reading this column makes me shudder. Just thinking of that possibility is bad enough, but when put into words, it's deathly scary.

(14)(0)

002225779says:

April 18, 2017 at 3:04 pm

Republican plans for protecting the retirements of workers all have one thing in common: they depend on directing whatever workers manage to save to brokerage houses, where they can at least generate fees if not profits. The promise has a lot in common with Trump's plan to make the US economy work for workers.